Dynamics of fdi inflow in bulgaria Essay

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Chapter 4: Findingss and Analysiss

4.1. Introduction:

This chapter presents the empirical findings of the research and analyses the consequences. The first portion of the chapter analyses the kineticss of FDI influx in Bulgaria between 1998 and 2009. Charts and graphs are used to convey the informations obtained from the Bulgarian National Bank ( BNB ) in an apprehensible manner. In subdivision 4.3 decisions about the possible FDI determiners are made on the bases of the analysis of the composing of inward FDI in footings of industrial sectors. The following portion of the chapter presents the existent determination about the motives and hindrances to FDI in Bulgaria, harmonizing to the study consequences. The concluding portion involves the application of statistical methods, in order to prove certain relationships.

4.2. Dynamicss of FDI influx in Bulgaria:

The autumn of communism and the procedure of passage to market economic system that began in late 1980s, involved the liberalization in investing governments and the denationalization of state-owned endeavors in Bulgaria. These are considered to be favorable ways for foreign companies to come in the market in Bulgaria.

Beginning: Bulgarian National Bank ( 2010 )

Bulgaria emerged as a important host state for FDI during the 2nd half of the 1990s. The influx of FDI grew easy during the first old ages of passage, due to the sulky procedure of denationalization, the hyperinflation in 1996-97 and political instability in the state. It can be seen in Figure 1 that FDI inflow about doubles in 2003 and increases with 48 % after the decision of accession dialogues with Bulgaria at the terminal of 2004. It can be argued that this tendency reflects the consequence of the favorable chances for accession of the state into the European Union. It is an indicant of the important function that economic integrating has in the consolidation of concern assurance. Harmonizing to Figure 1, the extremum of FDI influx in Bulgaria is during the twelvemonth of its accession into the EU, while the greatest growing rate in investing occurs merely before the accession, in 2006, when FDI stock additions with 97.4 % compared to the old twelvemonth. This dramatic growing in investing influx is chiefly due to the addition in investing in fiscal intermediation ( 24 % in 2006 and 159 % in 2007 ) , existent estate ( 237 % in 2006 and 41 % in 2007 ) and building ( 192 % in 2006 and 62 % in 2007 ) sectors. These unprecedented degrees of FDI flows in Bulgaria during 2003-2007 concur with the record universe FDI influxs ( UNCTAD, 2009 ) .

Harmonizing to the most recent statistical informations from the Bulgarian National Bank ( BNB ) , the FDI influx in 2009 is 57 % less than the stock in 2008. The first important lessening in FDI influx in the first one-fourth of 2008 coincides with the diminution in universe economic growing due to the planetary fiscal crises. During that period most transnational endeavors, whose investing assurance decreased because of the decreased entree to fiscal resources, either withdrew their investings or detained their prospective investing purposes.

4.3. Structural composing of FDI influx:

Figure 2 summarises the structural composing of FDI stock in Bulgaria during 2007 and 2008. Harmonizing to OLI paradigm, resource-seeking FDI takes topographic point largely in the primary sector. The available statistical informations indicates that at the terminal of both old ages, least inward FDI is registered in the primary sector, i.e. agribusiness, excavation and quarrying, which is the most resource intensive sector, in footings of both labors and handiness of natural resources. Manufacturing sector, which is besides associated with resource-seeking FDI, received merely 11 % and 12 % of the FDI inward stock in 2007 and 2008 severally. Therefore, it can be inferred that the handiness of natural resources is non a determiner of FDI in Bulgaria, while labour force could actuate investing in other industrial sectors.

Most inward FDI is received by the services sector, including existent estate, rental and concern services and fiscal intermediation. Therefore, most of the foreign investors in Bulgaria are market-seeking companies, taking advantage of the inexpensive extremely skilled labour force, the propinquity of the state to the big European market with chances for market growing and important investing inducements.

Beginning: Bulgarian National Bank ( 2010 )

4.4. General consequences from the questionnaire study:

In order to accomplish its aims and to happen out the chief motives and hindrances to FDI, a study with 25 of the major foreign investors in Bulgaria was conducted. From Table 1, it can be seen that 56 % of the participants belong to the fabrication sector, 20 % belong to the electricity, gas and H2O supply sector and 24 % belong to the “Other” sector, which includes IT companies. Since non all companies were willing to supply information sing the volume of their investings, the entire sum invested by the surveyed MNCs is hard to be calculated. Until the terminal of 2009, 43 % of the fabrication companies have invested ˆ1.081 billion, the volume invested by 80 % of the electricity, gas and H2O supply companies peers to ˆ1.523 billion and ˆ40 million were invested by two of the foreign IT companies runing in Bulgaria.

Table 1 Distribution of the surveyed companies among sectors

Frequency

Percentage

Valid Percentage

Accumulative Percentage

Valid

Manufacturing

14

56.0

56.0

56.0

Electricity, gas and H2O supply

5

20.0

20.0

76.0

Other

6

24.0

24.0

100.0

Entire

25

100.0

100.0

Figure 3 illustrates the kineticss of FDI influx received by each of the industrial sectors under probe. As can be seen from the figure below, the volume of inward FDI, received by fabrication, declines in the old ages after 2007. Fabrication is the most affected, among the surveyed sectors, by the general autumn in FDI which was due to the economic crisis.

Figure 3 shows a rapid addition in FDI influx to the electricity, gas and H2O supply sector in 2004. It is due to the denationalization of authorities organic structures engaged in concern activities in that sector largely by foreign investors. FDI in the IT and the other unclassified sectors is relatively little, with a inclination to increase in the hereafter. The fiscal crisis has no consequence on that sector. On the contrary, FDI inflow increases more than four times between 2006 and 2007 and by 55 % in 2008, compared to the old twelvemonth.

Beginning: Bulgarian National Bank ( 2010 )

Main motives for FDI in Bulgaria are presented in Figure 3. The respondents were asked to advert any figure of factors that stimulate or deter them to set about FDI in Bulgaria. For that ground, the entire per centums of the consequences presented in Figures 4 and 5 are non equal to 100.

Harmonizing to the consequences from the questionnaire, the low cost of labor is what motivates 84 % of the MNCs to put up concern operations in the state. The other of import determiners that influence the location determinations of foreign investors are chances for market growing ( 56 % ) , the low degree of corporate revenue enhancement ( 44 % ) and the FDI government outlined by the favorable statute law in Bulgaria towards foreign investors ( 44 % ) . The integrating of Bulgaria into the European Union is an attractive FDI determiner for 40 % of the respondents. Macroeconomic stableness is non every bit influential as expected, since it impacts merely 20 % of the participants in the study to put in Bulgaria. Market size and natural resources are mentioned as FDI determiners by 16 % of the companies.

The chief obstructions that foreign investors face when come ining the market in Bulgaria are shown in Figure 4. As expected, the chief Markss of the passage to market economic system are what impede the investing purposes of MNCs. The high degrees of bureaucratism, followed by the deficiency of developed substructure, typical for post-communist CEECs, are hindrances to 84 % and 76 % of the respondents severally. 60 % of the MNCs place the unstable legal system as a serious obstruction to FDI in Bulgaria. Corruption, offense, Mafia ( 40 % ) , political instability ( 24 % ) and the slow procedure of passage from centrally-planned to market economic system ( 16 % ) are besides factors that decrease foreign investors ‘ assurance. It was expected that the little size of the internal market would be considered as an FDI hindrance, bearing in head that market size is motive for merely 16 % of the companies. Contrary to outlooks, merely 8 % of the respondents are discouraged by the little size and none of the participants indicated the low degree of GDP as an hindrance to FDI in Bulgaria. A possible account of this contention might be the features of the sample used in the study, specifically the industry sectors to which companies belong.

4.5. Statistical analysis of the consequences:

In order to analyze the relationship between the most of import motives and hindrances to FDI in Bulgaria and the industrial sector to which MNCs belong, qi squared ( x2 ) trials are used.

4.5.1 Labour costs and sector:

Harmonizing to the study consequences, low labor cost is identified as the most important determiner of FDI in Bulgaria. It could be hypothesised that:

H0: Labor costs and industry sector are independent of one another.

H1: Labor costs and industry sector are associated.

For a degree of significance of 5 % , i.e. ?=0.05, chi-square value is less than the upper-tail critical value with grade of freedom equal to 2, x2 & lt ; xu 2. Therefore, we accept the void hypothesis. The consequence from the statistical trial reveals that there is no relationship between the industry and the variable ( Tables 2 and 3 ) .

Table 2 Labour costs * Sector Crosstabulation

Sector

Entire

Manufacturing

Electricity, gas and H2O supply

Other

Labor costs

Yes

12

3

6

21

No

2

2

0

4

Entire

14

5

6

25

Table 3 Chi-Square Trials

Value

df

Asymp. Sig. ( 2-sided )

Pearson Chi-Square

3.316

2

.190

Explanation:

4.5.2. Economic integrating and sector:

The rank of Bulgaria in the EU is mentioned as a motive by 40 % of the companies in the study. After using the chi-square trial for the same degree of significance, the void hypothesis is accepted:

H0: Economic integrating and industry sector are independent of one another.

H1: Economic integrating and industry sector are associated.

Table 4, 5

Explanation:

4.5.3. Bureaucracy and sector:

84 % of the surveyed companies have mentioned that bureaucratism is a important hindrance to FDI in Bulgaria. It can be assumed that:

H0: Bureaucracy and industry sector are independent of one another.

H1: Bureaucracy and industry sector are associated.

Harmonizing to the consequences of the statistical trial, shown in Tables 8 and 9, it can be inferred that bureaucratism is an FDI hindrance that affects location determinations of foreign investors independent of the sector to which they belong.

Table 4 Bureaucracy * Sector Crosstabulation

Sector

Entire

Manufacturing

Electricity, gas and H2O supply

Other

Bureaucracy

Yes

10

5

6

21

No

4

0

0

4

Entire

14

5

6

25

Table 5 Chi-Square Trials

Value

df

Asymp. Sig. ( 2-sided )

Pearson Chi-Square

3.741

2

.154

4.5.4. Lack of substructure and sector:

The deficiency of substructure is another variable that contributes to the lowering of institutional quality in Bulgaria and significantly impedes investing determinations of MNCs ( 76 % ) .

H0: Lack of substructure and industry sector are independent of one another.

H1: Lack of substructure and industry sector are associated.

The consequences of the statistical analysis are consistent with the expected consequences and the reviewed old research.

4.6. Decision:

The intent of this chapter was to show the consequences of the primary research, taking to accomplish the aims of the undertaking.

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